The ability of people to innovate never ceases to amaze us, companies are continuously developing innovative products. Despite their innovations, companies lose their competitive advantage. For example, let's think of companies that dominated their industries and today are struggling to stay as Nokia, Kodak, American Airlines, and Motorola, among others. Although at the time they had sophisticated products that were widely accepted by the market, these companies did not adjust their business models and that is why their successful days came to an end.
Today the competitive success of a company depends on its ability to create innovative business models. The book Business Model Navigator shows that 60% of the companies 25 most innovative companies in the world make their innovations in their business model, reporting increases in their income. Among the most famous examples are:
- Apple, the world's largest digital music seller and does not produce any songs.
- Pixar, winner of multiple “Academy Awards” without even a single human being in his films.
- Netflix, the largest renter of videos without having a single physical store.
- Amazon, the world's largest bookseller without even having a single physical library.
To innovate in your company's business model, we recommend the following:
- Do not try to reinvent the wheel, apply and adjust to your industry any of the business models that have already proven successful in another industry.
- Find a way to apply each existing business model in a context that has not been previously used.
- Consider the patterns of business models as a starting point to think about your business model and to create a completely new one.
- Some patterns seem similar but really if they are analyzed, they are complements of the models to which they resemble, for example, the "Razor and Blade" with the "Lock-In".
We share some of the most common patterns in business models of various industries.
- Peer to peer (P2P)
The model consists of connecting more than one segment of equal clients; that is people with people or companies with companies. You must remember to consider a value proposition for each customer segment. In this model, the development of the channel is very important since the model is a meeting point between equals. Some examples: Airbnb, Uber, eBay, Kiva, Alibaba.
The model consists of offering a free version to a segment of customers that require the basic functionality of the product/service and a premium version to a segment that requires premium functionality. Relations with customers are a barter because the basic version is given free of charge hoping to generate other businesses, for example, propaganda, or that tomorrow will be passed to the premium version. Some examples are Spotify, LinkedIn, Skype, Online newspapers.
It is a typical model of interacting with customers and consists of "enclosing" customers in the business model. Using another provider is not possible unless the customer is willing to incur costs for the change. The "confinement" can be generated by physical, technological or legal mechanisms. Some examples: Gillette, Uber, Lego, Pandora.
The long tail is based on the Pareto law or 80/20 rule where 20% of the products generate 80% of the sales. This model seeks to bring customers to the queue (that is, 80% of the products generated by 20% of sales) that are niche products, using recommendation systems. The model is widely used by electronic businesses and requires developing organizational skills such as Data Science. Some examples are Youtube, Itunes, Amazon.
- Razor and blade
The model consists of making a transactional sale by selling a base product (at cost) and generating recurring sales through consumables that are required for the operation of the base product. This model is recommended to use when there are sales of frequently used products or services. We recommend using the Lock-In model as a compliment. Some examples of companies that use this model are Gillette, Apple Itunes, Nestlé Nespresso, Cannon, Pandora, Amazon Kindle.
- Sale of extras
This model is useful when the customer makes a rational purchase. At the time of purchase, you are offered some extras to give in to your emotions and make an impulsive purchase of extras. Typical examples are the purchase of vehicles, purchase of airline tickets.
- Two-part market
The model consists of connecting interdependent groups; that is, different customer segments - people with companies. You must remember to consider a value proposition for each customer segment. In this model, the development of the channel is very important since the model is a meeting point. Some examples: Franchises (Subway), App Store, Visa, Newspapers.
- Mass customization
In this model, customers can customize their products, while companies retain the efficiency of mass production. In this model, the customer is both the creator and the consumer of the products. Some examples are New Balance, Lego, Dell, Subway.
In the crowdsourcing or open collaboration model, the work is done by “the mass”, that is to say by the multitude of people. People should receive recognition for their contribution (customer relationships) which can be monetary, reputation or access to a product or service. Some examples are Waze, Facebook, Wikipedia.
In this model, the client performs part of the creation of value by receiving savings in price and time. This model should be applied in situations where there are processes that add little value or do not add value but do generate costs. Some examples: Walmart, Ikea, McDonald's.
If the franchise model is seen in its basic nature, it is the result of combining some of the business models discussed so far (Two-part market + Razor and Blade + Lock In). In this model, a market segment is offered the right to exploit the intellectual property of the company. The franchisee is involved in the creation of value and can make consumers partakers. This model is very useful for businesses that wish to grow geographically. Some examples are PWC, Marriott Hotels, Starbucks.
Bartering is a way to generate relationships with customers as there are free exchanges of products or services between organizations and individuals. The model focuses on the exchange of value (time, reputation or recommendation). It is a model that serves very well when there are complementary partners. Some examples are pharmaceuticals and soap-operas (P&G).
- Customer Loyalty
The model is an extension of bartering, where the company provides discounts on products or services in exchange for customer data, being able to learn about its purchasing behavior. The above supports organizations with relevant data for strategic decision making Some examples: Aadvantage, Visa, Subway.
The subscription model is useful for cases in which customers make purchases of products or services regularly. With this model, the company can ensure regular income streams. Seen in another way, this model is a variant of the “Razor and Blade” model, where the subscription is the transactional income (razor) and the regular payment is the recurring income (razor). Today the subscription (razor) is not given. Some examples are Newspapers, Netflix, Salesforce, Amazon Prime.
Other patterns can be seen as variants of those already exposed. If you want to innovate in your business model, encourage yourself to experiment and adjust as you learn.